Pakistan’s Imminent Fuel Crisis


Pakistan’s economic crisis continues unabated and now the country faces an imminent fuel shortage with petrol and diesel stocks dangerously close to the mandatory 20-day supplies. Political instability and government’s inability to finalize the next trance of the IMF loan is only making things worse.


As an editorial in Dawn noted, “the multiple challenges that threaten to disrupt fuel supply include the foreign exchange crunch and the inability of oil firms to open LCs — this is in addition to their difficulty in getting LC confirmation from foreign banks after Pakistan’s credit rating was downgraded. The same applies to refineries for the procurement of crude oil; it has resulted in delays in shipment and reduced throughput of refineries.”


Further, “the steep currency depreciation means large exchange rate losses for oil companies due to lower product pricing. On top of that, the hike in interest rates means higher costs of financing their stocks. Hence, warnings of a major fuel supply disruption have been communicated by oil marketing companies and refineries to the government and the central bank.”


While the government argues that they have enough fuel “these official estimates are debatable because they don’t consider the rampant petrol and diesel smuggling from Iran. With the wheat harvest approaching, the demand for diesel will shoot up over the next several weeks, putting pressure on the supply chain. The oil industry has been operating in dire circumstances for the last six months, with the government deluding itself that everything is under control.”


Finally, as the Dawn Editorial notes, “situations in countries like Pakistan don’t take long to change for the worse. Poor management and incompetence at the official level will not help prevent the eventuality of massive fuel supply disruptions in the coming weeks.”


Author: Adam Ahmad